Doing More of the Same

The City of Rogers, Minnesota, is one of the last places the federal government should look to invest more money. The recent announcement that Rogers has received $800,000 to begin the groundwork for a future $34 million interchange is evidence that we have failed to learn the lessons of the current recession. There couldn't be fewer public investments that would provide a lower rate of return than an interchange that facilitates more Rogers-style development.

My wife and I lived in neighboring Elk River while I went to graduate school ten years ago. It was quite evident to me what was happening in this area long before it became one of Minnesota's epicenters for the housing crisis. All four of our Mechanisms of Growth (transactions of decline) are in full play, particularly Demand-driven Transportation Spending.

Highway 94 runs west from Minneapolis/St. Paul through Rogers on the way to North Dakota. When I was young, Rogers used to be a trucker stop with a McDonalds, Burger King and gas station. As Highway 94 was improved around the Twin Cities, Rogers became more accessible. The improved accessibility opened up more opportunity for development.

We’ve seen this pattern before. Rogers gave lots and lots of Tax Increment Financing (public subsidy) to attract businesses like Cabela's, a large sporting goods store. The state stepped up with further public subsidy for municipal utilities. In anticipation of improvements to Highway 94, developers bought up farms and built residential developments, all on debt-financed utilities. Strips malls, gas stations, restaurants, service shops – some subsidized, some not – sprouted at intersections with publically-funded traffic lights and along publicly-funded frontage roads.

This explosion in growth has outpaced the DOT’s ability to react to it. There are some evenings when it takes 20+ minutes just to exit the highway at Rogers, while the adjacent non-exit lanes are moving at free-flow speeds. The main collector streets in Rogers were never built to handle the amount of traffic they now carry. Dangerous congestion is the rule.

Is this a sign of success or failure? Did we grow beyond our expectations or did we just over-subsidize a lifestyle that we can't really afford?

Rogers’ city tax rate is reasonable – 39% of tax capacity in 2009 compared to a state average of 36%. It should be since Rogers is in the early phases of the growth Ponzi scheme. It has not had to pay the full cost of its growth and, subsequently, the growth that has occurred there is not very efficient. When the Ponzi scheme catches up with Rogers, it will have to deal with the imbalances between their costs to maintain infrastructure and the comparatively minimal amount of tax base that infrastructure has created.

But why wait? What if Rogers had to pay the cost of this interchange? Would they? Would it be a good investment? Would the local taxpayer be willing to front $34 million for the anticipated benefit?

If the cost of the interchange was paid locally, and the $34 million could be bonded at 4% over 50 years, the City of Rogers would need to come up with $1.6 million each year for the next five decades. The current budget is only $3.6 million, so a 44% tax increase would be necessary to cover the debt service. I seriously doubt the people of Rogers would be willing to make such an investment just to get on and off the highway more quickly.

They would also likely object to a toll, a way to share costs with other exurban-dwellers that make use of this exit. After all, they pay taxes too and moved to the area in anticipation of the improvements being made (even though the taxes they pay do not come near covering the expenses this type of development induces, as we know).

But when it is someone else’s money, the "investment" suddenly becomes good economic development policy. Republican U.S. Representative Erik Paulsen, whose district includes Rogers, said in a statement:

"Not only will a new interchange reduce congestion in one of the metro area's busiest travel corridors, it will also improve safety, reduce emissions and ultimately allow for further economic development in the region."

While there is no arguing with the fact that it will allow for "further economic development", that can be said just about any time the federal government is willing to drop $34+ million on a single community. The real question is not whether or not this will induce growth, but at what cost?

Representative Paulsen rightly identified the 2009 "stimulus" bill as having a low return on investment. He voted against it. We don't want to single out Rep. Paulsen because nearly every federal-level politician seemingly has the same approach, but the reality is this system is not going to change until enough of them look at this type of spending as providing too low of a return on what is essentially borrowed public money.

Roger's is an epicenter of failed mortgages and over-leveraged neighborhoods. If Rogers' style of development were a stock, wise investors would be selling, not investing millions of dollars. If there is any return on the investment at all, it is much, much less than the return the public would get from investing in transportation systems that would move more people, more quickly to more places. Getting exurban dwellers home 15 minutes earlier (or ultimately allowing them to live 15 minutes further out) is certainly not worth additional federal debt.

A Strong Towns approach would mean putting our resources into the projects that have the highest ROI, not spreading them around so each politician can have a press release in their own district.

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